Why Costco is winning the battle against Amazon

July 3, 2019

By Kim Komando

The world has drastically changed under Amazon. Vacant retail spaces and empty malls are now commonplace across the country, and big-name retailers continue to shut down storefronts at a rapid pace. Meanwhile, online commerce is booming and shipping times are magnitudes faster than in previous years — with same-day deliveries even available in select markets.In spite of this, one retailer continues to do well in the face of Amazon’s dominance: Costco. You might not expect a members-only chain of warehouse stores to be performing well in the late 2010s, but Costco is no stranger to defying expectations. Year after year, its investors complain that the company doesn’t focus enough on its bottom line, but loyal customers and clever supply-chain techniques have kept the company profitable against overwhelming odds.If you’re a Costco member (or frequent food court diner), you won’t believe the work that goes into keeping your favorite items affordable and readily available. It may seem effortless, but Costco has a number of tricks up its sleeve that make it one of the best places to shop, eat and work. Don’t forget the free sample!

Costco gets right what others get wrong

Unlike many of the world’s most valuable companies, Costco flouts the traditional notions of retail business. For one thing, you can’t even enter the store without a membership card (available for a yearly fee of $60).The stores are also devoid of atmosphere — appearing more as giant warehouses than shopping markets. Products are directly forklifted in pallets to their location, and the only shelves are large, metal, and bare bones. Most notably, there are employees stationed around the store that literally give away free product samples at no charge.How, then, is Costco able to survive against the ultra-competitive prices and services touted by Amazon? Well, the aforementioned gimmicks are all part of the show, and you, the customer, are Costco’s intended audience.

Engineering an experience

One of the biggest standout features of Costco is its insanely cheap prices for large quantities of goods. Where other retailers may work the numbers to mark up the prices of items, Costco does its best to reduce the impact of its own markups.According to the company’s annual results from 2018, the average markup for in-store items is only 11%, which is staggeringly low compared to traditional retailers that mark up their items up to 50%.The low markups, however, mean that Costco isn’t making as much money on merchandise as it could be. The low prices, however, are the bait to attract customers. Costco’s real moneymakers are found in annual membership fees and product selection.Unlike other stores, by charging a membership, Costco guarantees themselves a $60 minimum for every customer that comes through its doors for the first time. That quickly adds up and doesn’t even include the additional revenue from the food court (it’s open to non-members in some locations.) Related: One Costco service your family should be using Item selection is another big part of the Costco experience. Consumers often find themselves much more indecisive when presented with a large selection of items to choose from. Costco, however, stocks large amounts of one or two brands for everything in its store — helping to remove the pressures that come with decision making.The sheer volume of these exclusive items (think 60 count crates of ramen, for example) is another cost-cutting incentive for Costco shoppers. It helps save on merchandise costs while justifying the price of entry for consumers.Much like with Disneyland, everything at Costco is laid out in a specific way that’s designed to entice the customer to explore and shop. What’s more, the company doesn’t just trick people into spending money — it engineers its stores and products to be as affordable and inviting as possible.It’s to a point where investors and stockholders are often unhappy with the company’s focus on customer experience. But Costco’s survival is proof that other retailers should be taking notes.

The inside story isn’t so bad, either!

The biggest surprise to come from Costco, though, is how it treats its employees. In a world where retail turnover rates can reach as high as 65%, Costco retains some of the most dedicated employees in the business. Many employees stick around for years, sometimes decades, even!What keeps them in place compared to other retailers?As it turns out, customers aren’t the only ones in good graces with Costco. The average pay for a full-time Costco employee is around $21 an hour, which is enough for most employees to afford cars, homes, and a decent lifestyle.While it cuts into Costco’s bottom line, dedicated staff can be worth its weight in gold, and will go further to provide good experiences for customers. This, in turn, leads to more enthusiastic return visits from customers — a win/win for Costco. Plus, consistent staff with low turnover means less money spent on training and orientation.

So is a Costco membership really worth it over Amazon Prime?

As great as Costco is, there are a number of areas that Amazon has it beat. Prime membership gives users access to a massive streaming video library, as well as a more diverse marketplace of products than Costco has. Plus, there’s nothing more convenient than having goods shipped directly to your home (and fast, to boot!)That said, there’s something special about visiting a brick-and-mortar store and touching the products you’re buying with your own hands. It allows you to be less impulsive when you choose things to buy, and for items like food, you can even taste a sample before you load it into your cart. Related: Amazon Prime vs. Costco: Which offers more value? Ultimately, comparing e-commerce to physical retail is like comparing apples and oranges. Though they may occupy the same economic space, their attributes couldn’t be more different. There’s no doubting, though, that Costco offers incentives that few other retailers do. Whether you choose to take advantage of them depends on your needs as a consumer.One thing can’t be denied, however: Costco’s gas prices are a tough act to follow. If anything is worth the price of admission, it’s filling up your tank and paying less than you would at the gas station. If a day comes when Amazon can deliver cheap gas to your home without being a fire hazard, that’s when Costco might want to step up its game.